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Paul Ryan-authored budget counts on faster economic growth to achieve balance

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Taxes,Paul Ryan,PennAve,Joseph Lawler,Economy,Budgets and Deficits,CBO

The Republican budget released Tuesday morning by House Budget Committee Chairman Paul Ryan includes projections that count on added revenue from faster economic growth -- a method often referred to as “dynamic” scoring.

It's a method of projection that usually isn't included in congressional budget proposals by the Congressional Budget Office, the official nonpartisan budget scorekeeper for the government, and one that could generate controversy.

The 2015 House Budget refers to the estimates produced by including the effects of faster economic growth an “economic-feedback analysis,” rather than the more common term of "dynamic analysis."

The total effect of the economic-feedback analysis amounts to $175 billion over the 10-year budget window, and $74 billion in the last year, 2024. That amount, while relatively small relative to a roughly $5 trillion budget, is the difference that results in the Ryan budget achieving a $5 billion surplus in 2024, the only surplus in the budget window.

The “positive economic feedback effects” are the product of the lowered debt and subsequent lower interest rates contemplated in the budget, not the tax cuts or other supply-side measures also included.

Ryan justifies leaning on macroeconomic feedback effects by noting that the CBO has used such dynamics in its analyses before, including with the bipartisan fiscal 1998 budget resolution under President Bill Clinton and a GOP House that planned for a balanced budget. That budget, the 2015 Republican budget notes, was followed by federal surpluses four years earlier than anticipated.

Nevertheless, Ryan’s decision to include positive macroeconomic feedback effects inevitably will be flagged by critics as an attempt to unfairly contrive a favorable analysis for his budget.

Many Republicans, however, have long said that budget scores should take into account faster economic growth that would result from policy changes. The GOP-led House has passed bills mandating that the CBO take growth spurred by tax changes into account, although no legislation has become law.

In one extreme example of the GOP's preference for dynamic analysis, former GOP Speaker of the House Newt Gingrich in 2011 issued a scorching denunciation of the CBO for not scoring revenue generated from supply-side measures, calling it “a reactionary socialist institution which does not believe in economic growth, does not believe in innovation and does not believe in data that it has not internally generated.”

For its part, the CBO says that in general it does not do dynamic analysis partly because “estimates of macroeconomic effects are highly uncertain.” In its estimates of the budget and economic outlook issued each year, however, the CBO does take into account policy changes that would slow or accelerate growth.

Last year’s GOP budget did not include macroeconomic feedback effects. One additional hurdle to submitting a balanced-budget proposal that Ryan faced this year, however, was that in its new 10-year budget projections, the CBO estimated that revenue would total roughly $1 trillion less than previously thought, because of slowing economic growth.

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